The FTSE 100 <.FTSE> was flat Thursday morning, with retailers lower amid fears of a supermarket price war after market leader Tesco issued a profit warning following its worst Christmas for decades.

The FTSE 100 was up 1.06 points, or 0.02 percent, at 5,671.88 by 0943 GMT, supported by financials and miners.

Tesco shares were down 14 percent to a 32-month low after the world's third-largest retailer said it would invest in price cuts and its online business to win back sales, leading to minimal profit growth in its 2012/13 year compared with a forecast for a 10 percent rise.

Shore Capital cut its rating on Tesco to hold from buy.

Peer Morrison , which reported Monday, fell 8.2 percent and Marks & Spencer dipped 2.2 percent, as updates showed consumers conserved cash in the face of a bleak economic outlook and UK austerity measures.

Sainsbury , which updated Wednesday, shed 6.4 percent as Credit Suisse revised its profit forecasts and repeated its underperform rating, saying there is still not enough margin/returns progress for us to view the valuation as attractive.

Tesco traded on a price-earnings ratio of 11, compared with Morrison's 11.7 multiple, Sainsbury on 9.7 and the FTSE 100 at around 10, Thomson Reuters Starmine data showed, based on the market close Wednesday.

There was bad news too from mid-cap Home Retail , down 3.8 percent, as it said it expected to cut its full-year dividend significantly after seeing another poor sales performance at its Argos stores.

Struggling small cap chocolatier Thornton melted 15 percent on falling sales and as promotions hit its margins.

Mothercare and Ocado , however, rallied after their trading updates, up 2.1 percent and 14 percent respectively, albeit after their shares had taken a battering recently.

Alex Wright, manager of Fidelity Investments' UK Smaller Companies Fund, which has 18 million pounds assets under management said he liked the retail sector overall, saying that of nearly all the sectors in the market, it was the one where you can see the biggest differences in performance by stocks.

Even if you think the retail outlook is bad, there are almost always some winners and losers in the retail space.

SKYFALL

Pay-TV group BSkyB fell 2 percent after downgrades to neutral from buy by both Citigroup and UBS, which cited slowing broadband growth, the expected rising cost of new premier league rights and the stock valuation -- 14 times calendarised 2012 earnings per share -- as reasons for the downgrade.

Royal Dutch Shell slipped 1.1 percent, leading energy stocks <.FTNMX0530> lower , with traders pointing to market talk indicating the company was guiding lower on fourth-quarter earnings.

That came after Chevron , the second-largest U.S. oil company, said Wednesday fourth-quarter profit would be significantly below the previous quarter.

Supporting the index were banks <.FTNMX8350>, with Royal Bank of Scotland up 6.8 percent as analysts lauded the lender's plans for structural reorganisation.

We welcome this decision to further de-emphasize the company's less profitable, riskier and more capital intensive operations, Gary Greenwood, analyst at Shore Capital said.

Shore Capital, however, retained its sell rating on RBS reflecting ongoing economic challenges.

Peer Barclays was up 2.4 percent.

There was relief for investors in Ashmore , up 2.4 percent after the fund manager saw a small rise in assets in the fourth quarter.

Investors were also looking ahead to a Spanish sovereign debt auction, 2012's first real test of demand for debt from the euro zone's weaker states.

In terms of domestic economic news, the spotlight was on the Bank of England's Monetary Policy Committee meeting, with no change to interest rates or the quantitative easing program anticipated.

(Additional reporting by Tricia Wright; Editing by Dan Lalor)